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State Pension Age rise to 68 brought forward 7 years

19 July 2017

The Government has announced that the rise in state pension age from 67 to 68 will be brought forward to 2037, seven years earlier than current proposals, which is expected to save the government around £74bn.

This will affect those who are currently in their mid-40s to early 50s.

The change was announced by Secretary of State for Work and Pensions David Gauke, who said that in the light of rising longevity and the subsequent burden on the state pension system, it would help ensure “a fair and sustainable system that is reflective of modern life and protected for future generations” and give people “the certainty they need to plan ahead for retirement”.

Commentators largely saw the Government as “grasping the nettle” on this “controversial subject”.

However, whether the Government will be able to get the change through Parliament with its thin majority will have to be seen.

The Government’s decision may have been affected by the concession it gave in its negotiations with the DUP, to retain the triple lock pension. As Old Mutual Wealth head of retirement policy, Jon Greer said: “Today’s announcements are interesting in the context of the decision to maintain the triple lock, which causes the state pension to ratchet up ahead of inflation and earnings… on the one hand they are maintaining state pension increases for today’s retirees, while at the same time telling people age 47 and under that they will have to work longer before receiving their state pension.”

He added that one way around the rise would have been for the Government to have looked at a system that allowed for flexibility in the State Pension by allowing people to take a smaller State Pension at a younger age. “But they may have decided that such a system is too complex to operate,” he said.

Graham Vidler, director of External Affairs, Pensions and Lifetime Savings Association, highlighted that the proposal will affect “more than seven million people in their late 30s and 40s – the sandwich generation”.

“This group are also those most at risk of inadequate private saving – they have not had the same access to final salary pension schemes as their parents and are too old to enjoy the full benefits of automatic enrolment that their children will see.”

Vidler called on the Government to follow up on one of Cridland’s other recommendations and provide access to ‘Midlife Financial MOTs’. “This will help those people who need to work longer before they receive their state pension to make smarter financial choices to boost their savings,” he said.

Vince Smith-Hughes, a retirement income expert at Prudential, said it was important that the Government gave people enough notice of any changes so that they can save enough if they want to retire earlier.

“The Government set out the principle that people should expect to spend up to one third of their adult life receiving a state pension, and as life expectancy increases so will the State pensions Age.

“Prudential’s research has shown that one in seven people retiring this year has made no provision for their retirement and will rely heavily on the State Pension to provide an income when they stop working. The State Pension will provide a third of the total average income of all people retiring this year.”

Adrian Lowcock, investment director, Architas was more critical. He said: “Changing the future retirement age is a soft target as it has no impact on the lives and living standards of people today. Austerity today is being traded for austerity tomorrow.

“The message is clear, if you want certainty about your future and control over when you retire then it is important to make your own plans using ISAs and SIPPS to save for the retirement you want.”

 

 

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